European Sanctions Have Begun To Block The Iranian Banking System Off From The Rest Of The World

BRUSSELS (AP) — Dozens of Iranian banks were blocked from doing
business with much of the world as the West tightens the
financial screws on a country it wants to prevent from developing
nuclear weapons.

The Belgium-based company that facilitates most international
bank transfers on Thursday took the unprecedented step of
blocking 30 Iranian banks from using its service. The move is
likely to hurt Iran's all-important oil industry and make it
difficult for citizens to receive money from relatives living
abroad.

The move by the Society for Worldwide Interbank Financial
Telecommunication, or SWIFT, is part of a broader effort by
Western nations to isolate Iran financially and force it to
demonstrate that it is not trying to develop nuclear weapons.
Iran says that its nuclear program is for peaceful purposes only,
but officials in many other countries believe otherwise.

SWIFT said it was forced by recent European Union sanctions to
discontinue service to the Iranian banks beginning Saturday.
SWIFT is a secure private network used by nearly every bank
around the world to send payment messages that lead to the
transfer of money across international borders.

The chief executive of SWIFT, Lazaro Campos, described the move
as "extraordinary and unprecedented."

"It is a direct result of international and multilateral action
to intensify financial sanctions against Iran," he said.

There was no immediate reaction from the Iranian government or
the banks involved. Not all Iranian banks are subject to EU
sanctions, and oil experts say there will be ways for Iran to
sell oil without using SWIFT.

Still, blocking Iranian banks' access to SWIFT is "tightening the
noose" on Iran, said Ali Ansari, an expert on the Middle East at
the London-based Chatham House think tank.

Sanctions long in place have failed to convince Iran to return to
nuclear talks; the EU, which imports about 14 percent of Iran's
oil, plans to institute an embargo on Iranian oil in July.

The regime has been able to withstand these sanctions in part
because high global oil prices have provided Iran, the world's
third largest exporter, with record oil revenues. Iran exports
3.5 million barrels of oil per day, about 4 percent of the oil
consumed in the world. Last year, Iran generated $100 billion in
revenue from oil, up from $20 billion a decade ago, according to
IHS CERA, a consulting firm.

Iran is expected to continue to sell to India, China and other
major oil customers that are not participating in the EU embargo.

But by forcing SWIFT to expel Iran, Western nations are trying to
make it more difficult for Iran to sell oil even to willing
customers. A single oil tanker can hold $100 million worth of
oil, making electronic bank transfers crucial.

Analysts expect Iran to try to skirt the sanctions in a few ways.
It may exchange oil for cash, gold or other commodities directly.
It may try to mingle its oil with oil from other countries in
international terminals and pipelines to mask its origins. It
could get help from the central banks of countries friendly to
Iran.

"Throughout the history of the oil trade, someone always gets
around trade embargoes one way or another," said Jim Ritterbusch,
a veteran oil trader and analyst.

Also, Iranian banks that have not been sanctioned by the EU could
sell oil.

Analysts say by reducing the number of customers for Iranian oil
and making it more difficult to pay, Iran will be forced to
accept a lower price for its oil and likely be unable to sell all
that it hopes to.

Judith Dwarkin, chief energy economist at ITG Investment
research, said Spain and Japan are already reducing Iranian
imports and Europe's large oil companies have also cut back ahead
of the July deadline. Iranian oil shipments have already slipped
in recent months. In February they fell to a 10-year low,
according to the International Energy Agency.

Saudi Arabia has said it would increase production to make up for
any shortfall resulting from the sanctions. Still, analysts say
that will likely drive up prices because it will reduce the
amount of wiggle room — called spare capacity in the industry —
that the world's oil producers have to make up for shortfalls
elsewhere.

Oil markets were largely unaffected by Thursday's announcement;
traders had already pushed prices higher in recent weeks in
anticipation that Iranian supply would be disrupted. Analysts say
these worries have made oil $10 to $20 per barrel more expensive
than they otherwise would be. In New York. Oil settled at $105.11
per barrel Thursday.

Washington and allies Britain, France and Germany have taken a
tough approach toward Iran over the nuclear issue but have run
into resistance from Russia and China. The six nations have
agreed to meet with Iran to negotiate a solution, but East-West
disagreements within the group are greater than ever. Talks
between the seven nations ended in failure more than a year ago
in Istanbul, Turkey.

SWIFT facilitates not only large bank-to-bank transfers, but
small ones as well, which could lead to unintended consequences.
Many Iranians, including opponents of the current regime, live
abroad and send small amounts of money to their families in Iran
back home on a regular basis.

Mark Wallace, a former U.S. ambassador to the United Nations who
heads a group called United Against Nuclear Iran, wants all
Iranian banks to be included in the sanctions.

"We should not be allowing any Iranian banks access to the
international markets," he said. Still, he said, the sanctions
are already having "real bite," by crimping oil exports, leading
the devaluation of Iranian currency, and making it harder for
companies and Iranian elites to move money.

"The Iranian banking system is embattled," he said.

___

Jonathan Fahey reported from New York. Chris Kahn contributed to
this story from New York. Follow Don Melvin on Twitter
at http://twitter.com/Don_Melvin and Jonathan Fahey at
http://twitter.com/JonathanFahey .